EADS profit drops 39% on currency hedges, A380 costs

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LONDON (MarketWatch) -- European Aeronautic Defense & Space Co. on Friday reported a 39% profit drop in the first quarter, as a hit from deteriorating currency-hedging rates more than offset savings from its Power8 restructuring program, slightly more plane deliveries and a better mix of sales.

EADS (EAD) earned 103 million euros ($131 million), or 13 European cents a share, down from €170 million euros, or 21 cents a share.

Revenue rose 6% to €8.95 billion.

The results did beat expectations, as analysts polled by FactSet had expected earnings of €33 million on revenue of €8.79 billion.

Shares of EADS advanced 3.7% on the Euronext Paris, helped by an upgrade at Deutsche Bank to buy from hold as the broker looked past the "weak" first quarter results.

The Airbus division saw its profit nearly evaporate this quarter, with earnings before interest, tax, impairments, goodwill and exceptional items falling to €7 million from €89 million, as the plane maker continues to suffer from the costs of its A380 superjumbo program.

The aerospace industry has had a rough two years. Orders for new aircraft peaked in 2007, leaving top suppliers with bulging order books and component shortages, but demand for new jets collapsed as the economic downturn drove sharp cutbacks in air travel.

Still, Airbus commercial deliveries edged up to 122 from 116 in the first quarter, compared to 108 deliveries at rival Boeing
BA, -0.28%
None of its customers cancelled orders, a sign that airlines are starting to emerge from the financial crisis as the Airbus order book improved by 60.

EADS more broadly saw its order intake rise 54% to €14.4 billion.

"I am cautiously optimistic that our industry is slowly on its way back up," said CEO Louis Gallois in a statement. "Economic indicators signal a recovery trend of the global economy. This has a clear positive impact on air traffic."

Over the full year the European maker hopes to deliver about the same number of aircraft as in 2009, when it handed over 498 planes.

Still, there are a number of issues clouding the outlook for EADS, even though on Friday the company reiterated its forecast for earnings before interest, taxes and one-time items to reach about €1 billion in 2010.

"We need to progress with the A380, to finalize the contract amendment with the customer nations on A400M, while moving forward on the technical side and to step up the development of the A350," Gallois said.

The A350 XWB is the company's response to Boeing's 787. Although the design and characteristics of the jet have been frozen, it remains a paper airplane at this stage.

Ominously, Airbus Chief Executive Thomas Enders last month said in an interview with German weekly magazine Focus that he couldn't rule out deliveries of the A350 being delayed.

The current schedule calls for first flight to take place in 2012 and deliveries to start in 2013.

Uncertainty around the A350 program, however, isn't the company's only issue.

It needs, in the next few months, to put forward a new bid for a massive contract to build a new fleet of aerial refueling tankers for the U.S. military.

EADS and its U.S. partner Northrop Grumman
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initially won the contract in 2008, only to see the decision overturned a few months later after Boeing complained that the evaluations had been unfair and the brief unclear. EADS is now back in the bidding process, again stating on Friday that it intends to bid for the tankers.

EADS posted a net loss of €763 million in 2009 as it took provisions because of delays and cost overruns with its A400M military transport aircraft. It also took a hit from exchange rates.

One positive sign for EADS is the drop in the euro
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as a result of the sovereign debt crisis. EADS sells planes in dollars while most of its costs are in euros.

"EADS should benefit in the mid- and long-term if the dollar trend is confirmed," Gallois said.

Deutsche Bank said Friday's upgrade was largely on pricing in an environment with the euro at $1.25 instead of $1.40.

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